By Jack Pladziewicz, for the Chippewa Valley Post
The previous article in this series summarized the conclusions and recommendations of a second report by an outside consultant to the Wisconsin Employee Trust Fund’s (ETF) Group Insurance Board (GIB). It also provided some detail on several sections of that report, by Segal Consultants (referred to here as Segal-2). The material presented below will discuss additional sections of the report and will look briefly its longer-range impact.
[Click here for an analysis of how one Wisconsin company successfully implemented a healthcare plan that’s very similar to the Segal Consultants’ recommendations.]
The 162-page Segal-2 report discusses the potential short-term impact of recommended changes on ETF members, both those who are retired and those still working. That impact could conceivably be huge in reducing healthcare costs and therefore the costs of healthcare insurance. But that will happen only if the Segal-2 recommendations to improve the health of state employees are also implemented.
(For an explanation of the acronyms in the following material, click here.)
Self-Insurance
The concept of self-insurance – where a state pays eligible healthcare costs directly rather than paying premiums to an insurer who then pays those costs – is well tested. A large majority of states self-insure all their health plans and ETF has had a good experience self-insuring its pharmacy benefit.
It seems nearly certain that the ETF will begin to transition to a self-insurance model for all of its healthcare programs within the next year. The arguments for self-insurance presented in Segal-2, summarized below, are compelling and reinforce those presented in Segal’s first report.
Transitioning to self-insurance will better position the GIB to obtain the comprehensive data it needs to implement THM (Total Health Management) and thereby to reduce costs significantly to both the state and its employees. Disruptions to ETF members are expected to be limited since all but one of the current health plans in the ETF program report the ability to support a self-insurance model.
Self-insurance will also cut a number of costs. These would include Affordable Care Act market share fees which totaled $18.3 million in 2016.
Administrative fees for self-insured plans are also lower than for insured plans and, based on comparisons with other states, Segal estimates that 2016 costs would be $11.2 million lower under self-insurance. Self-insurance also eliminates insurance company profits and risk charges which are estimated at $11 million for 2016.
Finally, there is a modest “cash flow” benefit in that premiums to an insurer are paid in advance while medical expenses are paid as accrued and with a 30-day payment lag. The equivalent interest savings are currently projected at $0.7 million.
These and other savings are estimated by Segal to total $42 million annually, while utilizing the same provider structure and benefits. These savings are not from changes in claims costs, which are assumed to be the same in an insured or self-insured system, but rather from a reduction in various fixed costs.
It should also be noted that discounts from providers are generally available to self-insured or insured groups at comparable levels; that is: providers are neutral to which model is used.
Combining self-insurance savings with projected savings ($67 million) from geographic restructuring and consolidation produces an estimated annual savings of $109 million. This is based on the savings from structural changes as well as those from the transition to self-insurance because of cost benefits resulting from more integrated THM and data management systems.
As described in part III of this series, ETF has been thoughtful in sharing cost savings with employees. There is every indication that this will continue through the transition to greater THM and a self-insured system.
Pharmacy Benefit
The current pharmacy benefit for state employees is self-insured and managed by Navitus. Segal-2 notes that there is a high level of member satisfaction with the plan and that it is financially well managed. The pharmaceutical benefit represents about 12% of total medical-plus-pharmacy benefit expenses for ETF as compared to 15-18% for other large employee groups.
Pharmaceutical treatments are seen as an important part of THM and a powerful tool for reducing overall health costs. Proper use of the pharmacy benefit can reduce sick leave, manage chronic diseases, cure some diseases and avoid much more expensive and intrusive hospitalization and surgeries.
Yet Americans consume 50% more prescription drugs than the average for other developed countries. Addressing this, the Segal report says that striking a balance – between effective use of pharmaceuticals and avoiding waste, overuse and manipulative marketing tactics of the pharmaceutical industry – is crucial to THM and reducing costs.
As with the medical benefit, having accurate and comprehensive data on what works to improve health is crucial to THM and optimizing healthcare spending on prescription drugs.
Recommendations to the GIB include encouraging the benefit manager, Navitus, to promote actively the utilization of generics, with incentive payments to Navitus if it succeeds with this. ETF members already have relatively high (60-95%) generic drug dispense rates for many chronic diseases although some – such as asthma (26%) and autoimmune disease (19%) – have particularly low rates and represent opportunities for additional savings.
The report further suggests that limiting the purchase of pharmaceuticals to a preferred network or using a tiered provider structure could reduce pharmacy costs by 2-3%. In particular, greater discounts can be achieved for specialty drugs when purchased through a single or small network of specialty providers.
Local Government Plan
While nearly 75% of all public employees are in local government (including K-12 employment), a relatively small fraction of their employers have opted into ETF and local government employees represent less than 20% of ETF membership. While there are differences in the health plans available to local versus state employees within the ETF system, the benefit coverage is similar, as is the average total premium cost per participant.
As ETF moves toward THM and self-insurance, it seems inevitable that local government insurance plans will move even closer to those of state employees.
Retiree Coverage
Retired state employees who choose to continue their health benefits pay the entire cost of coverage, either with unused sick leave credits accrued at retirement or from other personal resources.
Health plans for non-Medicare ETF retirees are the same as for active employees and they face the same plan changes already described. However, since premiums within the active ETF group are not structured to reflect age-based risks and because retirees’ healthcare expenses are estimated to be 150-200% higher than that of the ETF group average, non-Medicare retirees in effect receive a subsidy for their premiums by being included in a group with significantly lower risk.
Medicare ETF retirees receive no premium subsidy because their rates are for plans available only to Medicare-eligible enrollees. In addition, their coverage plans have not changed as much because Medicare is the primary payer. Nonetheless, benefits and coverage are very similar to those of active employees.
The Segal-2 analysis concludes that the rates for ETF Medicare enrollees are high when compared with other states. It recommends a lower cost Medicare Part D plan and taking better advantage of Medicare Advantage programs that supplement the basic Medicare coverage.
For example, based on a request for information from providers, Segal projects monthly premium savings of $50-$100 (10%-20%) per retired member with no change in coverage for a passive PPO (Preferred Provider Organization) Medicare Advantage program. In a passive PPO retirees can use any licensed provider in the United States who accepts Medicare.
Premium reductions benefit retirees by allowing them to stretch their sick leave credits over a longer time period. This also would benefit the state by delaying the payout of the cash value of those credits and increasing the credit balances that would remain unused at the death of the retiree or spouse.
Data Management
The ongoing acquisition and analysis of comprehensive data are key to the assessment of member participation in disease management and wellness programs and in evaluating the effectiveness of those programs. This is also crucial in comparing costs and outcomes among an array of insurers and healthcare providers.
In particular, good data are required to determine accurately the average costs for the most common services, the impact of variable fee structures across multiple providers and the effect of various wellness measures and incentives on members’ health. This information is central to meeting the dual THM goals of better health outcomes and greater cost efficiency.
Currently ETF participates in the Wisconsin Health Information Organization (WHIO) initiative that collects health data statewide. However, this does not give ETF the ability to analyze plan performance, provider quality, health risks, member utilization and costs from a single data source. Segal-2 concluded that the WHIO data system cannot fully meet ETF’s data and analysis needs as the organization continues to move toward a data-driven approach to THM.
Segal-2 recommended that the GIB issue a request for proposals (bids) from commercial data warehouses to collect, store and provide a comprehensive array of analysis tools for comparing costs and effectiveness of providers, programs and member use. The target date for full operation of the new system would be January of 2017.
This would allow the GIB to specify in detail the data to be collected and evaluate the effectiveness of each change it institutes as it moves to a more fully engaged THM system. It would also allow the board to measure the relative costs and effectiveness of healthcare providers.
Market Observations
Minnesota began to move in 2002 from a multiple insurer model (similar to ETF’s current program) to a self-insured program. Increasing premium costs were cited as a major factor in the decision to make the change. While there are important differences in Wisconsin and Minnesota health markets, there are enough similarities to justify a comparison.
Even with a much smaller membership pool (127,000 in Minnesota and 240,000 in Wisconsin), costs for a single plan in Minnesota are about 24% less than in Wisconsin. Benefits in the Minnesota self-insured system were judged by Segal to be better than in Wisconsin and most Minnesota members pay no premiums.
While part of the 24% cost difference is attributed to Wisconsin’s 9% higher healthcare provider costs, much of the balance may reflect the greater efficiency of a well-managed self-insurance system. Many of the recommendations in Segal-2 are already in place in Minnesota, including self-insurance, tiered plan options and participation incentives for wellness and biometric assessment programs.
When comparing costs within Wisconsin’s private sector healthcare market place, one sees that current ETF Uniform Benefit premium costs are 20-30% higher than Platinum plans available in the Madison area public insurance exchange. In 2015, all of the ETF plans were more expensive than the highest cost option on the public exchange.
Platinum (90%), Gold (80%), Silver (70%) and Bronze (60%) plans are distinguished by the percentage of healthcare expenses they cover. The ETF Uniform Benefit plan currently covers over 90% of expenses and is considered comparable, or slightly superior, to Platinum plans.
Well-designed and well-managed large group plans like ETF’s should be more cost efficient than individual plans found on the private exchange. Segal-2 therefore concluded that there is room for significant cost improvements in the ETF system without compromising either coverage or quality.
If ETF members had used the private exchange to purchase Gold plans, the total plan costs would have been 18% to 32% ($207-$371 million) lower in 2016. A significant portion of this cost difference is a consequence of the Gold plans providing approximately 12% less coverage than ETF’s Uniform Benefit.
Nationally, the trend has been toward increased levels of cost shifting to patients through increased deductibles, copayments and out-of-pocket-costs. This is generally believed to be an impetus for consumers to become more involved in choosing the most cost effective providers. Trends toward consumer directed health plans (plans with a high deductible plus a health savings account) have nearly doubled nationally in the past five years, to 24% of those covered by an employer-sponsored health plan.
Historically, healthcare data on pricing have been opaque. Relatively few patients have known the costs of procedures, tests or services or how those costs vary between providers. Nor have consumers had access to data showing differences in quality and outcome by provider.
Even though transparency of provider costs and outcome data has increased and online tools for viewing the data have improved, few consumers appear to be using them. The Segal-2 report anticipates that this will change as financial incentives increase for consumers to utilize the most cost efficient and effective providers available.
Summary
ETF has already implemented significant changes in its healthcare plans based on the recommendations in Segal Consulting’s first report. The second Segal report reinforces many of the earlier recommendations and adds others – most notably fuller implementation of data-driven Total Health Management, restructured service regions and transition to full self-insurance.
Estimated savings of $89 million were achieved for 2016 from improvements in the renewal and negotiation process and the GIB’s implementation of recommendations in Segal’s first report. Recommendations in the second report on provider network structure and self-insurance are projected to save $109 million annually if implemented by the GIB.
Finally, Segal estimated that unnecessary and avoidable medical services in ETF’s existing program add up to approximately $267 million annually. The Segal recommendations related to Total Health Management are aimed at reducing these costs.
Some Potential Broader Implications
Although Segal’s analysis and recommendations are limited to the ETF and its members, it is interesting to consider the broader implications. Of the 276,000 full time equivalent public employees in Wisconsin, 74,000 are state employees and the balance are employed in local government (including K-12 education).
Less than 20% of the latter groups have opted in to ETF. If the cost efficiencies and outcome improvements envisaged by Segal and the GIB are fully realized over the next several years, there will be growing pressure for these groups to opt in to the ETF for insurance management since it seems highly unlikely that fragmented employee groups outside of ETF will be able to achieve comparable savings and healthcare improvements.
If all public employees were to come under ETF management the group size would more than double and exceed 500,000 participants (employees plus covered family members). This, of course, would improve ETF’s bargaining power in negotiating discounts from health care providers.
While speculative, it is also conceivable that within a few years ETF managed self-insured healthcare will enjoy advantages over private exchanges sufficient to induce private employers and individuals to seek participation in ETF managed insurance.
About the Author: Jack Pladziewicz was a member of the chemistry faculty of UWEC from 1973-2002 and is Professor Emeritus. Between 2003-2014 he worked in various capacities for Research Corporation for Science Advancement (rescorp.org), a private foundation dedicated to funding basic scientific research in the US since 1912. He retired as president of the foundation in 2014.
For a Feb. 24 Wisconsin State Journal report on a UW-Madison Faculty Forum that discussed proposed changes in the state’s healthcare plans, click here.